Design of Business with Design Science- Valutrics

Very few companies balance exploration and exploitation by continuously looking back up the knowledge funnel to the next salient mystery (or back to the original mystery) and driving across the knowledge funnel, in a steadily cycling process. These few businesses come to be defined by their balanced approach. They become design-thinking businesses.

Why do so many companies fall into the trap of choosing either exploration or exploitation, rather than balancing both? The reason, I believe, is that as companies grow, they become more comfortable with the administration of business. They like and encourage analytical thinking. They embrace a very specific way of arguing and thinking that includes a highly restrictive definition of what constitutes reasonable grounds for moving ahead with a project, a very narrow definition of proof. For analytical thinking, all proof emanates from the past—a general rule handed down from the past, or a set of observations of events or behaviors that have already happened. The average manager has been trained and rewarded to look to the past for proof before making the big decisions.

And to these analytically trained managers, the alternative appears quite frightening: the knowing without the reasoning of intuitive thinking. It is no wonder that organizations slowly but surely shift their structures, processes, and cultures to be friendly to only analytical thinking and, without realizing it, to only exploitation of existing knowledge. Their goal is not to drive out innovation but rather to protect the organization against the randomness of intuitive thinking. . But drive out innovation they do. It is a trap and a pernicious one.

The answer is not to try to get corporations to embrace the randomness of intuitive thinking and eschew analytical thinking entirely. They just won’t do it: it is too scary. What’s more, analytical thinking is absolutely essential to the exploitation of existing knowledge. No, we cannot do without analytical thinking or intuitive thinking entirely.

The answer lies in embracing a third form of thinking—design thinking—that helps a company both hone and refine within the existing knowledge stage and generate the leap from stage to stage, continuously, in a process I call the design of business. At the heart of design thinking is abductive logic, a concept originated by turn-of-the-twentieth-century philosopher Charles Sanders Peirce. His important insight was that it is not possible to prove any new thought, concept, or idea in advance: all new ideas can be validated only through the unfolding of future events. To advance knowledge, we must turn away from our standard definitions of proof—and from the false certainty of the past—and instead stare into a mystery to ask what could be. The answer, Peirce said, would come through making a “logical leap of the mind” or an “inference to the best explanation” to imagine a heuristic for understanding the mystery.

The McDonald brothers didn’t know that their Speedee Service System would work. They had imperfect data, but not irrelevant data. They knew that carhop restaurants had the appeal of relatively quick service, but had some drawbacks—loitering toughs and cold food. Their logical leap, their inference, was that patrons liked the basic concept but would like it a lot more if the restaurant were a drive-through with a narrower, more standardized menu.

The brothers had no “proof,” but they did not lack logic. At the time a heuristic is first tentatively proposed, no one can prove whether it is useful or valid at all. Proof comes only if the heuristic is tried and found to be helpful in producing the desired, or valid, result. The same holds for turning the heuristic into an algorithm. Neither of these steps into new knowledge can be proved in advance; all are validated—or not—through the passage of time.

As such, abductive logic sits squarely between the past-data-driven world of analytical thinking and the knowing-without-reasoning world of intuitive thinking. Rather than being confined to regressing the past to hone and refine within the current knowledge stage, the design thinker can add abductive logic to the reasoning repertoire to drive the organization through the knowledge funnel. And rather than being confined to the knowing without reasoning of intuitive thinking, the design thinker uses an explicit form of logic and a process that, while less certain and clear than analytical thinking, has promise for producing advances with greater consistency and replicability than pure intuition.

The design thinker therefore enables the organization to balance exploration and exploitation, invention of business and administration of business, and originality and mastery. Design thinking powers the design of business, the directed movement of a business through the knowledge funnel from mystery to heuristic to algorithm and then the utilization of the resulting efficiencies to tackle the next mystery and the next and the next. The velocity of movement through the knowledge funnel, powered by design thinking, is the most powerful formula for competitive advantage in the twenty-first century.

To get there, businesses must acknowledge that they implicitly favor exploitation over exploration, because most businesses, whether they know it or not, favor reliability over validity. In the next chapter, we will examine those concepts in detail and investigate the forces that converge to reinforce an organizational bias toward reliability. Subsequent chapters will deepen our understanding of the contrasting modes of logic that produce exploration and exploitation, and the implications of both for the way we work. Most firms are dominated by declarative logic, or deductive and inductive reasoning (the logic of what should be or is operative). But new knowledge comes about by way of abductive reasoning, the logic of what might be. I offer a guide to developing the capacity for abductive reasoning—the essential core capacity for design thinkers—in the individual and the organization.

A different kind of thinking demands a different way of organizing work. Reliability-oriented firms view applying a heuristic or running an algorithm on a continuous basis as their overarching task. So they build up permanent departments staffed by fungible people in permanent slots. They devote the bulk of their energies and resources to rigorous planning and strict budgets. Those processes, which are applications of inductive and deductive logic, drive out initiatives that can’t produce near-certain future outcomes.

To balance administration and invention, a business needs to shift the weighting of its structure, processes, and culture. While some aspects of the organization can and should continue to be structured as permanent jobs or tasks, significant parts of the organization should be structured as projects—that is, with teams and processes designed to move knowledge forward a stage—with a definite end point. While planning and budget management can’t be thrown out the window, they have to be loosened to incorporate initiatives and investments whose outcomes can’t be predicted in advance. And culturally, it’s imperative that people know it is safe and rewarding to bring forward an abductive argument.